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Verbatim text
Lee Matthew Jackson:
Welcome to episode number 122 of the Agency Trailblazer podcast. This is your host, Lee. And on today’s show, you have myself. We’re gonna be sharing with you some of the recordings that we did for the costs workshop inside of the agency trailblazer community. If you are a member, you’ll be able to find the ebook as well as our profit and loss template that we use within our agency. But don’t worry, if you’re not a member, we still link out to a whole load of great resources that you can find in the show notes. So sit back, relax, and enjoy the show. This podcast is brought to you by the Agency Trailblazer community.
Lee Matthew Jackson:
Is agency life stressing you out? Then it is our mission to help you build an agency that you love. We’ve created a community which includes the agency reset roadmap that will allow you to get your agency back on the right track. We also have lots of noble straight to the point, easy to consume workshops. We have a thriving community of other agency owners. And we all wrap up every month with a mastermind call with myself and sometimes a special guest where we unpack your questions. For more details, check out agency trailblazer.com. In this workshop, we’re gonna be talking about cost management. And this is not an exercise in teaching you how to soak eggs.
Lee Matthew Jackson:
But, really, it’s to prompt you to review what you are currently spending to see if you can enhance your profitability, to see if you can get some of that work life balance or that work life integration back into play. So first of all, let’s just talk about the idea of cost management with regards to actually increasing the profits of your business and actually getting some time back. Very often, as an agency owner, we think we need to increase our prices. We think we need to get more work in so that we can grow our business so that we will have more money in the bank, which allows us to take a step back. But what we often don’t realize is that we’ve built up a regular monthly amount of money or yearly amount of money that is regularly going out of our accounts. This is actually money that could be within the business and eventually being drawn out of the business as profit. Now I’m not saying you need to just go ahead and cancel absolutely every direct debit or every single software as a service payment that you have. But it is a very good idea and a very valuable idea to take a look at what you are spending money on to see what could be saved.
Lee Matthew Jackson:
Now, I’ll give you a word of warning as well. You don’t want to become stingy. There are certain things that you pay for that are highly valuable that actually save you time and money, and it’s not a good idea to get rid of those things. So, for example, you may have a CRM system, which is very helpful for managing data. And if you were to decide to cut the cost of that monthly expenditure and switch over to a spreadsheet, you might actually increase the amount of time you have to spend on your customer relationship management because you’re now using a spreadsheet which is actually no longer fit for purpose. So every single cost that you are looking at, you do need to weigh up the value of that cost. Is it having an effect, a positive impact on your business, or is it actually a cost that you could save some money on? Last year within our own agency, we were actually able to save £4,000 on software as a service costs. What happens over time is we have a problem.
Lee Matthew Jackson:
We Google for a solution, and we find some great application that will solve that problem. It happens to be software as a service as a pay monthly. We sign up for a few accounts. It starts to go out of our credit card, and you don’t think any more of it. You use the service now and again, and so on and so forth. Rinse and repeat. The same happens maybe a few weeks later. I’ve got another problem.
Lee Matthew Jackson:
I find a great software as a service solution, And these all build up over time. And it’s actually really scary how much money you are spending per month. $25 $40 $50 $100 a month. All of these don’t sound a lot on their own. But as you add them all together, as they start to build up over time, you may actually be spending literally 1,000 of pounds per year on software as a service products products that you rent. We were able to make this change by purchasing specific applications for our company that would run on our machines. So, for example, you could actually replace your project management tool with a pay for product like Microsoft Projects or Itask 3 if you’re on a Mac. There are several project management tools that you could use that are installable.
Lee Matthew Jackson:
You can still share that data across places like Dropbox, etcetera, so that you can all collaborate, say, on Gantt charts, etcetera. But you don’t have to have pay for services. Now, I will caveat that with we eventually chose to stick with Asana and InstaGantt, which gives us the Gantt charts because we’ve got the advantage of clients being able to access in etcetera. So that’s a very good setup for us. And that’s an example of how you do need to weigh up certain purchases, and then have a look at whether you are getting specific benefits that are worth keeping that cost going. So for us, although we were able to purchase other softwares to do things internally, certain products that we were looking at buying, we ruled out because we realized there were definitely advantages through using online software. What I would recommend as well is if you can get hold of some of the free trials of any pieces of software that you are considering purchasing to see whether or not they will work for your business. And if they do, you can invest, you can cancel the relevant software as a service applications that you were, quote unquote, renting.
Lee Matthew Jackson:
And then you can commit to that pay for product. Now, remember, any downloadable application usually comes with some sort of yearly renewal, but it’s usually a heck of a lot cheaper than purchasing ongoing software as a service subscriptions. All the cost that you could be looking at saving on are your physical location, your Internet bills, etcetera. So how much are you spending? One thing that I was doing as an agency was using inkjet printers that cost an awful lot of money versus actually just getting an account and getting one of these more expensive printers through a local printing company that then allowed me to print documentation for a heck of a lot cheaper with a machine that will last an awful lot longer. So as you can imagine, there are an awful lot of ways that you can save money, and it is something that you do need to make a very careful decision on. But before you actually enter into that sort of exercise, you really need to understand as a business what the current state of play is. You need to know the current picture. So that’s what you have coming into the business.
Lee Matthew Jackson:
That’s your sales, the revenue, And what is going out of the business? So that is salaries and all of your other costs. So the first thing you’re gonna wanna do is make a list of all of these sorts of incoming, outgoing transactions. First of all, the costs, that’s a very easy one. You can look at your bank statements, your credit cards, etcetera, and you can work out very quickly in a spreadsheet all of the costs you have. And you can see what was, say, a yearly investment, what’s a monthly investment, and also you can attribute what was a one off investment as well. So, for example, if in a particular year, you had an electronic device you had to purchase, then that can also just go in the list as an example. But you can then start that as optional, something that may or may not be required here or there. Once you’ve got all of those costs, you can then have a look at all of your past invoicing and create a picture of the average sort of income that you would expect.
Lee Matthew Jackson:
Now, the reason for this is this is gonna give you, an understanding of what your costs are and the gap between your costs and your your income, And it’ll allow you to lay that out on what’s called a profit and loss spreadsheet. I’m not an accountant, so I’m not gonna be able to teach you how to create and manage your profit and loss spreadsheet, but we will link to some sources in the notes of this workshop to allow you to go and understand those. And we’ll always recommend that if it’s not something you’re strong on, then get a local accountant or bookkeeper to just help you get all of this down. Once you’ve been able to put your full profit and loss together, the next step is to review what you have. Now, with most profit and loss sheets, this kind of gives you not only a picture of your history, but allows you to project some form of future based on the average amount of money that you believe you will be pulling in over the course of that year. So this gives you the ability to see where the weak points are going to be, where you’re going to have to do some extra work in your sales process, or maybe where you can make some real changes by cutting some of the costs, especially as with most agencies during those points in time where there is gonna be a dip in the amount of income that you have. Perhaps that could be over the Christmas period or wherever that is. So we’re gonna wanna reflect on what is inside of the profit and loss and start to understand where and what can be removed.
Lee Matthew Jackson:
Once we have all this down, this is going to allow us to understand how much money there is in our business. And we can then start to plan a budget for the year. Now having a budget for the year is just as important as having your profit and loss down. Your profit and loss is really just a picture of your business as it is and what the projection will be based on what it is. Creating a budget really allows you to establish what sort of things you are gonna be spending on over the next 12 months. And, again, this will then affect your profit and loss. First of all, you’ve found out your current picture. You then reflected on that current picture.
Lee Matthew Jackson:
You can do some cost saving exercises. And then with the money that you understand that you have, you can now start to create the relevant budget. Knowing what is going on in your business actually allows you to make informed decisions on employing people, on paying the rent, on where you are physically located. All of these costs that you have, or perhaps costs that you want to take on become a lot more clearer once you have everything down on paper. Otherwise, it’s just a lottery. It’s just a guessing game. It’s just a sufficiency. It’s a hope for the best.
Lee Matthew Jackson:
None of those, I can tell you from experience, are great ways of running a business. Whilst reviewing your profit and loss, whilst creating your budget, you’re gonna be able to see where the weak points of your business are as well. So if there are things that you want to be able to afford, if getting someone else in is going to really help your business, but you recognize that there is not the budget available at that point in time or the cash flow is not as you want it to be, then you can start to make further decisions. It’s not a case of saying, right, well, we can’t afford this, so fine. Let’s forget about it. You can actually start to plan for the future. You can start to put things in place to enable that to happen. Obviously, cost cutting is one of the ways that you can start to help towards affording things that are more essential for the business.
Lee Matthew Jackson:
But, equally, being able to do things like increasing prices or seeing a particular product which is far more profitable than others that you could really deep dive focus on and sell more of so that you can increase the revenues and increase the profits coming into your business. Again, all of this requires us as business owners to have some understanding of what is going on in our business, the ins and the outs. Having that profit and loss spreadsheet is something that I never did as a business owner for many, many years until the point where I had to go for some advice with hiring decisions. And I was not, like, not made to feel stupid, but they were absolutely flabbergasted when they said, where is your profit and loss? And I said, what’s a profit and loss? They said, well, what was your revenue? And and I went blank. And what are your costs? And I just went blank. And they said, well, you can’t come to us for advice. You can’t be considering who to hire next in your business if you don’t have all of this information, if you don’t have a picture of your business as it stands and you have no possible idea or direction on where you’re going. How on earth can you plan when you don’t know the full picture? So if you’re not encouraged yet, I do suggest you go ahead and check out the link in the description that will show you how to start to create a profit and a loss spreadsheet.
Lee Matthew Jackson:
Now, I did allude earlier that you really should be looking at financial advice, having somebody in who understands this sort of stuff. If making the profit and loss spreadsheet is not something that you find very easy, you find complicated or you don’t really know or understand how to read it, then you certainly need financial advice. But even to the point where you’ve got all of that stuff together and when you’re creating a budget, I really recommend getting a third party in. So we have our account. We will regularly hit up our accountant for some advice, maybe send them an email saying we’re thinking of making this purchase. How do you think we should make this purchase? How do you think we should cost for this purchase? Do you think this purchase is wise at this moment in time, given the current forecasts, given the current cash flow, etcetera? Having regular financial advice is absolutely essential. We can often make decisions based on emotions. Whereas if we have a financial adviser who is looking at the facts and can give us a real, outside in perspective, that’s gonna really help us with all of the financial decisions that we make.
Lee Matthew Jackson:
I’ve made many decisions over the last 10, 15 years in business based on emotions and having no idea what is coming in or going out of the business. And I had to suffer as a consequence, suffer with poor cash flow, suffer with worrying how to pay people at the end of the month because other invoices have not been paid, and I’ve gone ahead and made some random purchase. So it’s really important. I can’t stress this enough. If you can have some sort of regular financial advice, a regular financial review, Monthly might be a bit too much, but at least quarterly. The way we have our accounts set up with our accountant is that we actually pay a monthly fee. Our bookkeeping is done with the accountant, and we can also have a monthly or quarterly meeting, go through everything, unpack everything, ask the relevant questions. And then at the end of the year, our full accounts are done and submitted to the government, and we have to pay all of our taxes, etcetera.
Lee Matthew Jackson:
But that’s great because it takes all of the pressure off me. I’m not doing the bookkeeping. I’m not stressing out about all of our accounts. I’m not stressing out about doing all of the relevant things you have to do to meet the requirements of our government here in the UK. And the best thing is I’m able to get is that regular advice, that regular sanity check over decisions, that regular, expertise when it comes to asking about the purchase of certain elements. I mean, if you’re following us on YouTube, you’ll be aware that we have purchased recently to what feel like very expensive machines to Dell XPS fifteens. So that was a 4 and a half £1,000 worth of investment. So I was able to reach out to my accountant.
Lee Matthew Jackson:
Can we afford this? Is this wise to purchase at this moment in time? How should we purchase this? Should we purchase it from this account? Should we do it from here? Should we be considering financing? So all of these sorts of questions were absolutely essential to ask an expert. And the expert was able to help us looking at our profit and loss, looking at our cash flow forecasts, etcetera, and then give us the relevant advice as to how we should purchase, if we should even purchase, and when we should purchase these particular items. The key to cost management is knowing what you are earning, knowing what you are spending, ensuring that your spends are worthwhile and that they have value. They’re gonna actually impact the business. Important to have planned budgets, and you’ve really got to stick to those budgets. And it’s crucial you get regular advice. Remember there are notes in the description with links to third party resources that are going to help you start to build up your profit and loss spreadsheet, start to help you understand how to create a budget, and again I would encourage you talk to your accountants, your financial experts, and start to get some regular advice put in place to help you take your agency to that next level or simply just to get some of that valuable time back because, hey, if you’re working really, really hard all the time to pay all the bills, how about we reduce some of those bills so that you don’t have to work as hard all the time and you can get some of that valuable time back. Go and get a beer.
Lee Matthew Jackson:
Go chill with the family. And that wraps up today’s show. So if you like this sort of no nonsense content and you are not a member of the agency trailblazer community, then never fear because we are opening the doors permanently from 16th April 2018. Yes. You heard me right. Permanently on 16th April of 2018. I would love to thank the founder members who got involved back in January. You guys have been fantastic.
Lee Matthew Jackson:
The forums have been going nuts with loads and loads of great content, people connecting, networking, sharing. The mastermind calls have been so much fun to do, and it’s been an honor and a privilege to build my agency alongside you guys. So if privilege to build my agency alongside you guys. So if you’re not a member, we’re looking forward to welcoming in you to the community. You can find out more over on agency trailblazer.com. Get on the list so that you can be made aware of a launch day and also any special offers that we may or may not be having because I’ve not decided on any yet. Have a freaking awesome day, wonderful week. If you’re not in our lovely free community, the WP Innovator group on Facebook, then simply run a search for WP Innovator or go to wpinnovator.com/group.
Lee Matthew Jackson:
I’ll love you and leave you. Tata.
